Everyone has a responsibility to help meet Net Zero targets. For businesses that means adhering to emerging reporting regulations around their Environmental, Social and Governance (ESG) obligations.
In the UK, for example, Streamlined Energy and Carbon Reporting (SECR) already requires large organisations to disclose their energy use, greenhouse gas (GHG) emissions and carbon footprint as part of their annual financial reporting. Many more businesses will also need to adhere to the Corporate Sustainability Reporting Directive (CSRD) and the Sustainability Disclosure Requirements (SDR) – which aims to tackle issues such as ‘greenwashing’.
Pressure to be more transparent is coming from multiple areas – from international governments to shareholders and consumers. And, even if there isn’t a regulatory requirement for your organisation currently, if you’re in the supply chain of businesses that do have to report, you will increasingly be asked for your Scope 1 data as part of pitches and due diligence. Essentially, your Scope 1 data is someone else’s Scope 3.
The consequences of not reporting effectively could be significant – both financially and in terms of brand reputation. Put simply, it’s not worth the risk.
Rather than fear these changes, however, companies should see this as an opportunity to gain visibility and clarity over their supply chains, identify areas where positive changes can be made, and become more sustainable, ethical, and competitive.
People, processes and building a reporting platform
Compliance relies on gathering data from across the business and the wider supply chain, which can be challenging for organisations. This information will need to be pulled from disparate sources – especially when it comes to data around Scope 3 emissions.
You also need to know who owns the data, and the frequency and cadence with which it is refreshed. A certain level of knowledge is required to understand units of measurement and how robustly suppliers are undertaking their own measurement.
All of this means building a dedicated ESG reporting team that understands what data needs to be reported on and where that data resides.
This raises the question of where ESG should sit within the organisation, and who will lead it. Successful reporting relies on putting the right people and processes in place, and deciding which elements of an ESG reporting platform an organisation wants to build in-house and what it outsources.
There are seven simple steps that companies can follow when building the foundations:
Outline clear objectives
Set clear objectives for calculating carbon emissions. These should cover specific regulatory requirements to ensure compliance, as well as commercial considerations. It is essential to take a high-level approach to effectively monitor and reduce emissions.
Detail requirements and scope
Identify the data required to calculate Scope 1,2 and 3 emissions. This includes emissions from data centres, property and power consumption, for example – as well as company travel and vehicles, and supply chain and financed emissions.
Define an overarching operating model and governance structure
Define an ongoing process for calculating and reporting on emissions, including tracking the progress of remedial actions. Set up an overarching governance structure and agree on roles and responsibilities across different divisions of the business.
Appoint staff to roles identified in the operating model
Make sure you have the right staff in place – and ensure that they have received sufficient training. This shouldn’t be tacked on to the day job, but resourced properly with people who are motivated by ESG issues.
Identify skills or capability gaps
ESG reporting teams need to evaluate the skills they possess in-house and where they need to bring in specialist consulting or technology partners, to build additional capabilities.
Don’t try to solve everything at once
Focus on making incremental improvements and taking an iterative approach to ESG reporting. It’s essential to take time to understand obligations and timelines. This is necessary to ensure project deliverables are aligned to meeting the minimum requirements for critical targets.
Connect with industry peers
Share knowledge with other organisations that are going through the process. ESG reporting teams should be encouraged to connect with their peers and exchange experiences and ideas to learn and improve. There are more and more opportunities to do this, through groups such as CFO Network, the Environmental Business Network or ESG Peers, for example.
The path to better reporting
ESG reporting will become an imperative for businesses as we aim for Net Zero. Companies need to see it as a priority, and they should be preparing now.
There are challenges, limitations and pain points that need addressing before companies can build their own ESG reporting model, however. Without standardisation, it’s important to establish what ‘good’ looks like for your individual business over time.
Whichever route you choose, cross-departmental support will be critical, as it has the potential to impact – and benefit – every part of the organisation. Those who lead ESG reporting need the training and resources to do the job to the best of their ability. And, if the appropriate skills are not available in-house, companies should look to partner with companies that can provide the expertise they need.
Ultimately, leaders and decision-makers must recognise that ESG reporting is not a burden or a threat, but a huge opportunity to reassess in-house processes and those of their partners. It could lead to positive changes that benefit the business, its customers and suppliers and, ultimately, the planet.
For further guidance on on preparing your organisation for the next chapter of sustainability reporting, click here to read Stellarmann’s most recent white paper.
- Sustainability Technology
